November 2009
Facilitating international assignment
compensation management
Why is in-house knowledge critical for success?
Carlos A. Mestre, Geneva
Anne Rossier-Renaud, Geneva
www.mercer.com
Facilitating international assignment compensation management
Why is in-house knowledge critical for success?
Anne Rossier-Renaud
Carlos Mestre
Anne.rossier-renaud@mercer.com
carlos.mestre@mercer.com
Telephone: +41 22 869 3091
Telephone: +41 22 869 30 90
Mercer
1
About Mercer ©
The largest HR Consulting Company in
the world with over 17,000 employees in
42 countries (180 cities)
Recent industry recognitions:
– Voted the "Best Employee Benefits
Consulting Firm" by readers of
Business Insurance magazine
– Voted the "Consulting Firm for HR
Strategy and Management" in
China by China Staff
Mercer worldwide countries
Mercer
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Global Mobility Value Chain – Our Global Mobility Services
1. Strategy and
Design Consulting
• Global
Workforce Needs
Assessment
• Career
Development/
Competencies
• HR
Transformation/
ROI Analysis
• Organization,
Policies and
Process Design
• Comp., H&B,
Retirement
Consulting
• Competency
Assessment
Mercer
2. Compensation
and Benefits Data
3. Relocation
Services
• Cost of Living
• Cross-Cultural
• Quality of Living
• Language
• Housing Data
• Spousal
Support
• Country Profiles
• Local
Compensation
and Benefits
• Compensation
calculations
• Cost projections
• Tax reports,
tables and
calculators
• Housing service
• Schooling
• Property mgt.
• Visas/Permits
• Moving/storage
4. Tax Services
• Tax
reconciliations/
filings
• Consultation to
employees
• Tax
optimization
5. Administration
• Payroll
• Health &
Benefits
Administration
• Expense
Management
• Expatriate
Program
Administration
• Statements
• On-site Support
• Repatriation
Ne•wExpatriate
Compensation
Mgt. Software
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Today’s agenda
1. Trends and background – what you are telling us
2. What is changing – the value of knowledge
Four areas to consider for in-house knowledge
2. Questions and Answers
Mercer
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1. Trends and background
What you are telling us?
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Response to Webinar Mini Survey
How have the number of employees on the following types of assignments
evolved over the last six months?
Globalist
Assignments
Short-Term
3- 5 Year
Assignments Assignments
Stayed the same
73%
57%
50%
Reduced
14%
26%
27%
Increased
13%
17%
23%
Mercer
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Response to Webinar Mini Survey
Have you made changes to your global mobility policy/policies or
elements of it during the past year?
No
52%
Yes
48%
Are you planning to review your international assignment
policy/policies or elements of it within the next year?
Mercer
Yes
65%
No
35%
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Response to Webinar Mini Survey
Number of firms that run employee engagement surveys?
No
53%
Yes
47%
What are the main areas for improvement in your current policy/policies?
TOP 5 main areas
79%
Compensation - consistency, clarity, exception avoidance
27%
Costs containment
17%
Flexibility, compensation trends
17%
Benefits
11%
Communication with assignees
Others: Housing, COLA, repatriation, localisation, currency
fluctuations, short term policy.
Mercer
8%
21%
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Response to Webinar Mini Survey
How transparent are you in communicating packages to your
international assignees?
Fully transparent - we explain the methodology
77%
Partly transparent - we only provide the final salary figure
23%
How important is to explain the details of the package build up to your
international assignees?
High
89%
Low or not at all
11%
Do you know/evaluate how well your international assignees
understand their packages?
Usually or always
48%
Rarely
40%
Never
13%
Mercer
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Response to Webinar Mini Survey
If you outsource parts or all elements of your international assignments
management process, do you retain in house the communication of the
package to the assignee?
Yes
79%
No
21%
If yes, do you feel this approach brings the desired results?
Mercer
Yes
86%
No
14%
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Response to Webinar Mini Survey
What are your main barriers to employee international mobility?
Mercer
Costs
29%
Family issues, education and dual careers
17%
Compensation packages
13%
Policies issues, i.e., inconsistency
9%
Legal implications
7%
Immigration, communication, tax
6%
Cultural difference
6%
Career management and identifying talent
5%
Remote location, security
4%
Cost of living currency fluctuations
4%
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Response to Webinar Mini Survey
What are your 3 most difficult assignment locations and why?
Mercer
APAC Pacific, cultural difference
15%
China, visa difficulties and tax issues
15%
Africa, life conditions, security, host country HR support
14%
India, taxation issues
11%
Russia - Kazakhstan, different social structure, language barrier, work permit
11%
Western Europe, immigration
6%
US, tax system, difference in cost of living
6%
Brazil, immigration
6%
Middle East, tax equalisation, lack of host country HR support
4%
Latin America, infrastructure
3%
UK, currency devaluation and tax changes, cost of living
3%
Saudi Arabia, culture
2%
Turkey, immigration
2%
Venezuela, government policies
2%
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Response to Webinar Mini Survey
What are the most successful elements of your current
policy/policies?
Mercer
Expatriate allowances
33%
Compensation model
15%
Visa and immigration
10%
Spouse support
10%
Transparency, standard terms, consistency
9%
Relocation support
8%
Employee's engagement to the company
7%
Benefits
5%
Flexibility
3%
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Response to Webinar Mini Survey
What are the main areas for improvement in your current policy/policies?
Mercer
Consistency, clarity, avoid exceptions
27%
Costs containment
17%
Benefits
8%
Communication
7%
Flexibility
7%
Housing and COLA
7%
Taxation
7%
Repatriation
6%
Family issues, schools
4%
Compensation package
4%
Localisation process
2%
Currency fluctuation
2%
Short term assignment policy
2%
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Response to Webinar Mini Survey
What changes have you made in the past year? Selected quotes.
Added short term assignments policy
All company policies have been revised to fit our current situation (more globalized company)
Benchmarking and policy updates
Benefits have become better coordinated
Change in comp models and policy element, COLA change from efficient to mean-to-mean
Change of data provider
Changed home leave from business class to economy class
Changed the assignment premium structure and made program more formal for consistency sake
Changed the methodology for determining Housing allowance, Hardship allowance, Piloting a home to host approach
Changed to gross salary in general
Changes to home leave practices, revising policy to make more explicit which items are covered
Changing housing allowance benefit, changing hardship allowance, developed a global strategy
Civil partnerships
Comprehensive review of old policies. Revised Long and Short and created a Development policy.
Costs cutting for young employees"
Costs of Living index also applied to assignment allowance
Currency fluctuation compensation
Mercer
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Response to Webinar Mini Survey
What changes have you made in the past year? Selected quotes.
Decided on a global policy framework, but each country can tailor the specifics to suit
Developing an Expatriation Strategy
Distinction between type of assignment/package less generous
Eliminated expatriate allowance (10% of base) and replace by mobility allowance - only across regions
Flight class for travel, relocation allowance
Hypo tax withholding for net salary compensation
Implement a fix time line a maximum period that some assignment conditions are applicable
Implemented a Short-Term Assignment Policy
In progress - separating into different assignment types.
Increased hardship allowance and decreased COL allowances
Introduced a new expat policy and have tried to add some flexibility within it
Introduced localisation policy and maximum period of assignment is 5 years
More incentives regarding "difficult" countries
New mobility policy & governance structure
New suite of policies to replace the one rather cumbersome policy
Phasing out some expat benefits, e.g. maids
Mercer
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Response to Webinar Mini Survey
What changes have you made in the past year? Selected quotes.
Reduction of home leave benefit (from business -> economy class), more regular review of housing allowances
Removed a end of short-term contract bonus
Restructured assignment premium - which decreased it, limited auto allowance, restructured housing allowance.
Separated policy into tiers
Stricter terms
We are moving toward a Core+ Cash approach to streamline our provisions, processes and add more flexibility for the
business groups and expats
We changing the "way we've always done it" and begin implementing policy
We have attempted to introduce a tiered policy. e.g. fully built up package only for business critical roles, reduced
benefits for 'career development' moves.
We have moved from one fits all to a multi tier policy
We have updated our UK policy
We reduced the flight allowance to one per annum from two per annum. We introduced a COLA (where positive), we
wrapped up some small allowances and the repatriation benefits into a net lump sum at the start and end."
We revised the entire policy, but this movement began before the crisis. We clarified some concepts that weren't clear
before and improved the operational expat process, mainly related to compliance/legal
Went back to our core policy/program and required compliance for the past year in order to obtain some baseline
numbers
Mercer
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2. What is changing – The value of knowlegde
Four areas to consider for in-house knowledge
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5 Good reasons why expatriate managers overlook the options
You may not have the time
You do not want to take the time, other priorities
You consider it a waste of your and others time
You are not allowed to take the time
You may not have the right tools that allow you to:
– gain insights into your IA program outcomes
– bring value to the table (how do you define a strategic partner?)
So your focus is likely to be heavily weighted towards administrative
tasks
You can change this – and Mercer can help you
Mercer
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Four areas to consider for in-house knowledge
4. Methodologies
3. Metrics and Analysis
2. Engagement
and
drivers
1. Benchmarking
Mercer
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Four areas to consider for in-house knowledge
Benchmarking
1. Benchmarking
Mercer
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Benchmarking: Expatriate Compensation Levels in Singapore
(standard policy applied)
4 2 0 '00 0
S w it z e r la n d
Un i te d S t a t e s
Un i te d Ki n g d o m
4 0 0 '00 0
3 8 0 '00 0
Au
C
ans
at rdal
a iay
G
e
rm
an
3 6 0 '00 0
Net total amount in S$
S w it z e r la n d
3 4 0 '00 0
Un it e d Kin g d o m
Fr a n ce
Ja p a n
Un it e d S t at e s
Ge r m an y
A u s t r a lia
3 2 0 '00 0
Sw e d e n
3 0 0 '00 0
C an a d a
Fr a n c e
2 8 0 '00 0
Jap an
S w it z e r la n d
2 6 0 '00 0
Sw e d e n
Un
ite d
d Kin
S t a tgedso m
Un
A u ite
s t r a lia
Fr a n c e
Ge r m a n y
2 4 0 '00 0
2 2 0 '00 0
Canad a
Sw e d e n
Ja p a n
Professional
Mercer
Management
Executives
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Benchmarking: Comparative annual value of allowances
50'000
45'000
40'000
35'000
Euro
30'000
25'000
20'000
15'000
10'000
5'000
0
G
C
O
E
M
I
H
N
A
Q
P
F
D
B
L
J
K
Companies
COLA
Mercer
Hypo Housing
Utilities
Mobility
Relocation
Company Car
23
Benchmarking: Trying to localize?
395'000
345'000
Net total amount in S$
295'000
245'000
195'000
145'000 Local
Local
employees
employees
95'000
45'000
Mercer
B a s e s a la r y
COLA
M o b il it y
P re m iu m
Ac c om m o d ati on
C a r B e n e fi t
E d u c a ti o n
+
Lo
ca
l
St
at
es
U
ni
te
d
Sw
itz
er
la
nd
U
ni
te
d
Ki
ng
do
m
ed
en
Sw
Ja
pa
n
In
di
a
G
er
m
an
y
Fr
an
ce
Au
st
ra
l ia
-5'000
Q u a lit y -o f -L iv i n g
P r e m iu m
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Four areas to consider for in-house knowledge
Engagement and Drivers
2. Engagement
and
drivers
Mercer
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Engagement and drivers: why is value understanding
important?
Identify areas
that employees consider important
that impact decision making
Monetary benefits
The effect on career and job opportunities
The opportunities for the family
Not all assignments achieve the same degree of value. A better
understanding of what drives decision making will enable you to align your
policy and package to what your employees consider important.
Mercer
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Engagement and drivers: valuable feedback
The grid analysis
Motivators
High
5
Verbal Importance
A3
A1
B1
C7
4
A2
A7
B2
C6
3
A4
2
B5
B3
1
B4
Low
1
2
3
4
5
Low
High
Impact on Decision Making
Mercer
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Four areas to consider for in-house knowledge
Metrics and Analysis
3. Metrics and Analysis
Mercer
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Metrics and Analysis
Costs
Benefits
Straight costs
Developing human capital
Break up or discontinuity of
functioning teams
Bringing broader experience to
project teams to enrich the work
Disruption in existing client
relationships
Greater breadth of
understanding of client and
business issues
Re-patriation productivity loss
Productivity loss due to poor
expat-assignment fit
Enhanced ability to attract top
talent to a truly global enterprise
Potential undermining of the
creation of specialist knowledge
(i.e., “specific Human Capital”)
Mercer
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Metrics and Analysis: What is the expatriate program doing for..
YOUR FIRM and for YOUR EMPLOYEES?
Are teams composed of
international assignees more
successful than teams that are
not?
Are individuals who take an
international assignment more
successful and/or have
greater career opportunities
than those who don’t?
What is the overall
international assignment
experience? How are various
vendors viewed? How do
international assignees feel
about the repatriation
experience?
Mercer
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Metrics and Analysis: Sources for information and measures
Employee surveys, interviews, focus groups, etc.
– current and former expatriates
– views on pre, during and post assignment, and quality of vendor services
The running record of employee experiences
– promotions
– career mobility
– pay growth
– turnover
Business performance
– profitability of assignments
– growth of customers
– quality of projects
Mercer
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Metrics and Analysis:
Are individuals who take an expat assignment more successful and/or
have greater career opportunities than those who don’t?
High
Manager’s span
of control
International experience
Pay growth
Number of jobs
held within firm
Amount of training
Technical expertise
Outside experience
Education
Highly-rated manager
Position tenure
Unit size
Low
Lower
Promotion likelihood
Higher
Disguised client example
Mercer
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Metrics and Analysis: the flows that determine what your
workforce looks like
Hires
Level 8
Exits
11
168
38
17
16
7
72
81
517
49
81
6
Career
level
186
640
125
Lateral
moves
123
129
5
190
341
830
184
134
4
312
Promotions
3
Mercer
116
234
963
227
85
383
45
86
33
Metrics and Analysis: What is the overall expatriate experience? How are
various vendors viewed? How do expats feel about the repatriation
experience?
% Agree
The assignment supports
the company’s goals
97%
The assignment supports my
long-term career goals
84%
The company does a good job
of communicating with me
during the assignment
The company adequately
prepared me for the way
business is conducted locally
47%
35%
Disguised client example
Mercer
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Four areas to consider for in-house knowledge
Methodologies
4. Methodologies
Mercer
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Methodologies: Why do companies review international assignment
policies and processes
To be more competitive
– Ability to attract or retain dissatisfied expatriates
Pressure to reduce cost
– Pressure from management and regions leads to side stepping
policy
– Administration is costly
Need to review processes, improve buy in
– Responsibilities, ease or improve administration, communication
Growing complexity of the business needs
– Regional transfers
– Global inequities
– Mix of nationalities
Mercer
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Methodologies - Cost of Living Index
More than a number – a message
Home based cost of living index methodology
– Is it a realistic option when you need to transfer employees from many different
nationalities
Host based cost of living index methodology
– In other words, we survey the living patterns of the expatriate in the host country
A home and host based cost of living index methodology
– Will always be related to the two cities being compared
– Do you feel that supporting a home country mindset and an expatriate mindset in the
host country is the right message for your expatriates
– How sustainable economically?
International based cost of living index methodology
– Compares the same basket in all locations
– Consistency in quality of items, brands and stores
– Aligned with vision to build global managers
Mercer
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Methodologies: A quick look at cost of living differential allowances
(COLA)
1:10
Variation in net
value of COLA
Comparative
Comparativeannual
annualvalue
valueofofCost-ofCost-ofLiving
allowance
Living allowance
16'000
14'000
12'000
Based on:
same host / home
combination
Euro
same salary
10'000
8'000
6'000
4'000
2'000
0
C
G
N
P
E
L
Q
O
A
D
H
F
K
I
B
J
M
Companies
same family size
COLA
Based on a Frankfurt to Paris, €100,000 gross base salary and family
of 4
Mercer
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Cost of Living Allowances – Different ways to apply it
Example Amsterdam – Abu Dhabi, €100’000 base salary , married + 2
Convenience (Total
spendable incom e)
Convenience (Index related
spendable incom e)
COLA in EUR
Efficient (Total spendable
incom e)
Efficient (Index related
spendable incom e)
-EUR
4'000
Mercer
-EUR
2'000
EUR 0
EUR
2'000
EUR
4'000
EUR
6'000
M/M negative index (Index
related spendable incom e)
39
Expatriate compensation packages comparison
Mumbai – London, March 2009, Single Technician level
EUR 45'000
EUR 40'000
Housing allowance
EUR 35'000
EUR 30'000
EUR 25'000
International Spendable
supplementary amount
EUR 20'000
Cost-of-Living allowance
EUR 15'000
Net home salary
EUR 10'000
EUR 5'000
EUR 0
Standard
balance
sheet
Mercer
Using
Using
International International
Spendable
Spendable
Income Tier Income Tier
1
2
UK local
annual net
salary
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5 good reasons why in-house knowledge is a good investment?
It is the only way you can contribute in a strategic way:
– Provide fact based and effective reporting
– Bring insights about the program and what it does
It is the only way you can differentiate from competitors:
– Make it your firm’s competitive advantage
It is the only way you can master difficult discussions with
expatriates and make the point :
– What is the message to your expatriates?
It is the only way you can add value to your policy and not only
costs :
– Use your limited resources to focus on drivers of decision making
It is the only way you can do it right…
Mercer
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3. Questions and Answers
46
Questions and contacts
Questions
Anne Rossier Renaud
Geneva
+ 41 22 869 30 91
Anne.rossier-renaud@mercer.com
Please type your questions in the Q&A section of the toolbar
and we will do our best to answer as many questions as we
have time for.
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button on the bottom right-hand side of your screen.
Carlos A. Mestre
Geneva
+ 41 22 869 30 90
Carlos.mestre@mercer.com
To submit a question while in half screen mode, use the Q&A
panel on the bottom right-hand side of your screen.
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